Excellent idea. Suggest buying a house for your son to live in, and rent rooms to other students. Look into the cost of buying and the cost of room rent - you will probably find that using this plan, your son can live free of charge.
And when he is done college you can sell the house hopefully at a profit. Good way to introduce wife and son to real estate investing.
Years ago I read a story about a student who put himself through college this way. He bought a total of 5 houses, turned them into rooming houses for students and made enough money to pay his way through school. The only problem was his near failing grade in economics class. The economics professor knew nothing about investing and had worked for wages all his life.
Is there anyone else out there whose dreams are being put on hold because of an ultra-risk-averse spouse (who also works)? I am a father of 2 who is desperate to do something more financially rewarding with his life. I already own a different business, but it is a case of trading hours for dollars. I would have started REI long ago if I weren’t being thwarted every step of the way. My entrepreneurial nature has resulted in countless money arguments over the past 18 years. I am an example of a would-be investor who is being forced to do a no money down deal, even though I have equity in a beach house that would provide more than I would ever need to get started.
Has anyone else here gotten their start doing a lease-option? I don’t really want to become a landlord, but if it gets me started on the path to a new more profitable career in REI I am for it. This is one of the few ways I can think of for buying real estate without investing $thousands. Is there any way to start with less risk than lease-optioning a property (saw one yesterday in a good area near town by the way - just have to find out what potential rent would be). I am thinking of doing a lease-option making the contract contingent on finding a tenant within 30 days.
Hi DW,
How are you talking to your wife about investing?
At one point in my life, I was “partners” with a significant other in a home health agency. Well, as soon as the money came in (lots of it), he was spend, spend, spend.
Then, he would unilaterally make decisions which would affect my pocketbook – i.e. I bought a new printer for the office, so you have to give me money to pay office rent. Needless to say, this did not go over well with me.
Is this what your wife is facing? Are you responsible in paying for bills, or do you expect her to pick up the slack while you spend your money on investments?
If so, I can guarantee you that I wouldn’t be interested in real estate investment either.
I don’t know your circumstances, but run this like a business. Get the insurance you should have; do some flips to other investors. Have a cash flow. Most importantly, show your wife that you’re not burning your last dollar and that you don’t expect her to pick up the pieces.
This may help a lot in getting her to appreciate real estate investing.
You could start out bird-dogging for another investor or assigning contracts. If you find a good deal, there is very little or no risk. I recently had too many deals to handle personally, so I assigned one of them and literally made $3,000 for 3 hours work! It was a 3-bedroom, 1 bath house that needed rehabbed. The owner wanted $30,000 for the house which had recently been appraised for $46,000 as-is. I offered $14,000 and after about a month of waiting for the seller to become sufficiently motivated, the seller agreed to sell for $18,000. I gave the seller an earnest money deposit of $400. With one phone call to another investor, I had an agreement to assign my contract to the investor for a $3,000 assignment fee with $1,000 non-refundable up-front. A month later, the deal closed and I picked up a $3,000 check. I had absolutly no risk and made $3,000 for 3 hours work. Still trading hours for dollars, but $1,000/hr isn’t bad!
You probably have wonderful wife over all. Maybe you are approaching her from the wrong angle, maybe she is not a ?numbers? kind of woman. Risk vs. gain doesn?t make sense to her. Have you really, I mean REALLY, expressed to her how you feel when your entrepreneurial desire is not met?
Posted by Pookie Wookie on April 12, 2005 at 11:10:27:
Tell your wife that You are the Man of the house and Your decision is to better the Family and the decision is Final! Start going to church and highlight the passages such as Woman was made from a Man’s rib and such. She will start to see the light and your future will prosperous from Investing in Real Estate.
I don’t mean to sound like Suze Orman here, but is it possible that your spouse isn’t your biggest obstacle?
Real Estate is all about selling and people. It would help if you could sell this idea to her. I suggest that you address your spouse’s concerns head-on. If she’s unwilling to risk money that you share, then you should try it first with money that’s yours (even pocket money or mad money could potentially buy a mobile home). Or consider buying on options where you have greatly reduced risk.
If this is about time spent away from the family, then agree to do something she really wants to do if she’ll let you spend a day or weekend doing what you really want to do (looking for deals).
My impression is that you may have your own reservations about getting into real estate investing and she’s able to sense that (I base this on your comment about being a landlord).
It’s true that a supportive partner or spouse is a fantastic asset to investing but it’s not absolutely necessary.
When I started investing(after a job layoff for 2 months), I bought one property a(rehab) that I could afford. I then owned it without a mortgage. I then went to a local bank and got a loan against the free and clear house and I bought another. Before I knew it I had bought 12, and technically I have none of my own money in any of them. I have a line of credit at a local bank for $156,000. Some of my houses are rented, 1 is rent to own, some are getting ready for sale.
I recently bought a house from a person that was trying to fix up an old house. He bought it(partially smoke damaged)for $7,500.00. He spent a few years working on it. New plumbing, new electrical, new CH&A, new roof. Had over $20K in it. I bought it for $16,000. He was simply tired of tinkering with the house. The point is that I didn’t have the cash laying around so I mortgage my 2003 Explorer($20,000)at my credit union to buy it and have some $ to finish the kitchen paint and flooring. When I get it looking real good, I will go to the bank and get an equity loan on it for a minimum of $20,000 to pay off my car again. The house will be worth $40-45,000 when done.
Use whatever $ is available to start. There is money to be made, but you have to start.
PS I do consult my wife on everything I do, but I am the primary earner, I have a JOB, I am responsible for our finances, & I made the decision to buy houses. She may not like the extra hours I put in getting this business going, but she likes the rewards and the security of knowing that God willing, I am not live or die by the day JOB that I have.
Do you own your own home? If not you should buy one. The most risk averse spouse should be able to see the logic in that.
Then buy a rental property. A single house. Shop for a bargain, use your creativity to buy with a low down or no down payment.
Then as soon as you can, sell it. I mean as soon as you can make a substantial profit. Fortunately real estate doesn’t go up $1.87 or even $14 at a time, it goes up in chunks of $5000, $10000 or more. As soon as you can sell for a clear profit after expenses of $10000 or $15000 do so. Take the money in dollar bills and give it to your wife. Tell her this is extra money from your real estate investment and it it hers to do with as she likes. Buy a mink coat, a great vacation, new furniture whatever she likes. If she is as conservative as you say, she will probably want to put most of it back into another property.
Of course there is also the possibility that she is right. After all she knows you better than I do.When you say “I don’t really want to become a landlord, but if it gets me started on the path to a new more profitable career in REI I am for it.” I’m not sure what you think real estate investing is.
I’m trying to determine from your post what you mean by doing a “lease option” - are you proposing lease-optioning a property then renting it out?
If that is the case, my thoughts are:
Typically your monthly payment on a lease-option is higher than a rent payment - people lease-option their properties to get a higher payment and also to avoid the financial risk of repairs etc. Can you rent it out for a sufficient amount, to cover your lease payment, plus allowance for repairs, plus allowance for vacancy/advertising, plus provide some cashflow?
or are you hoping to capture some appreciation when you exercise the option? What happens if the market is flat or drops during the option period? (how long is the option period - do you loose the right ot buy after a year? or is it longer?)
The biggest risk with a lease-option, is what happens if the person you are leasing from stops making their mortgage or property tax payments, and the property gets foreclosed (and you are stuck with an option that may not be worth anything and a rather unhappy tenant, could make for an interesting and expensive legal situation which you are in the middle of).
At some point the option will expire and you will either have to buy or give it up, will your spouse be agreeable to buying when the option is up? Or are you just looking to take a spread on the rent in the mean time?
Also bear in mind you won’t get the depreciation tax benefits that you may qualify for if you actually owned it - that can make a major difference in the numbers.
Run the numbers, allow for all concievable expenses (if the lease option requires you to take care of the repairs, make sure you know what a new roof or burst water heater could cost), and know your exit strategy (are you just in it for cashflow then abandon the property when the option expires, or is your spouse going to come round and are you going to eventually buy it?).
The other aproach is to work on your spouse, do your homework financially, and take a specific deal to her with all the numbers and “what-if’s” flushed out, to show what the real risk really is, not some percieved risk. If she own’s any stocks, mutual funds in her retirement account, she is already carrying a degree of risk that is similar (or higher, not backed by a real asset like a house) to Real Estate investing, in fact you could position RE investing as a way to diverisfy the risk you already have. Just be sure of your numbers first.
Posted by I think not on April 12, 2005 at 18:36:17:
Are you on drugs? What you are proposing is only going to make it worse. I am by no means taking her side on this, but marriage is supposed to be a 50-50 partnership. They need to find a way to compromise on this issue without using caveman tactics.
I don’t want to become a landlord (I would prefer to buy & flip for quick profits), but I would do it if that’s what it took to get started in the business (lease-option for a year then sell for profit or refi for equity to be used on another deal). As far as my wife is concerned, “any” real estate investment is “very risky” (her words). I have tried to convince her time and again. She has a mental block toward real estate, or any business venture for that matter, because it involves risk.
I have watched my father pass up at least 3 great RE investments over his lifetime that would have added countless $$$ to his retirement. Instead, he sat on his hands and did nothing. Today, instead of living at the beach in a comfortable retirement, he lives on a fixed income in the sticks. That’s not what I want for my life, and that’s not the lesson I want to pass on to my boys.
Did you build up a credit line of $156k only AFTER you had lots of equity? How does one build up a good credit line in the beginning without (a) hurting their credit score and (b) a job (I currently am employed full-time).
It’s kind of absurd, but not only do we own a $250K personal home, we also bought a beach cottage 2 years ago that has increased in value at least 300% since we bought. Granted, she fought me tooth and nail about this buy, but because she likes the beach she went along. (I think she’s glad we did it now.)
I am frustrated to no end. I like the idea of making some fast RE bucks and passing along $$$ to my spouse. This is the only way I think she will ever be convinced, is to hold the bills in her own hands. Yet, I have to take the risk before I have the dollars to show. Its a quagmire. How do you get through to a partner who can’t see an inch outside the box?
I started getting Home Equity Loans on each home. After 5 the local S & L said that was enough. I went to a local bank with a request for $250,000 Line of Credit on 8 houses. They did a drive by valuation and loaned me $156,000. A straight Line of Credit with the properties as collateral.
I couldn’t tell you my credit score. I started with no personal debt. That probably helped some. I then used C-Cards with cash advance amounts, a personal line at the S & L, and a loan against a vehicle. Once I got a couple of cheap houses with no “mortgages”, it kind of started rolling. Borrow against a free & clear to by another.
Posted by Killer Joe on April 12, 2005 at 10:56:36:
DW,
Zebras never change their stripes. They wrote a song about it for a cartoon years ago, maybe you know the words, “I am what I am and that’s all that I am” …yea, it’s the Popeye Song. Stop hoping your wife will change, accept her behavior and work around it.
Here’s an idea. Your wife doesn’t get nervous that you have a boss, because she doesn’t percieve there is a risk (false assumption on her part). If you found a partner, many of us do, and together, you and your partner worked deals, you would accomplish several things. First you would have two heads working on your behalf, second your wife may see that the risk is not all yours, third you would have a real person to share you REI excitement with, fourth you could accomplish alot more in the same time if you choose a good partner.
Giving her the money from a profitable deal will not solve the underlying problem she has with accepting risks anymore that giving a poor person a new Cadillac. Seems like a good idea at the time, it just has no legs. You have an ambition to get involved in REI, and if it is genuine, and unfulfilled, it will lead to larger disappointments and resentments down the road.
Consider forming an LLC or other entity involving a partner and tell her it is just a part time job that you are involved in. I know this sounds silly on the surface, but if you structure you conversation with her correctly you will be able to circumvent a lot of her fears. Remember, you have to play to your audience, so if she believes this is an actual endevor that is supported by more than just your dreams she may look at it in a different light.
Talk to some agents. Ask what you could get for your beach house. Have them prepare estimates and when they call, make sure your spouse answers the phone. Maybe she will believe them.
If this doesn’t work sell the beach house and hand her the money in cash. Tell her she can spend the money on anything she wants.
If that doesn’t work you will either have to get a divorce or resign yourself to living in your $250,000 home and spending the weekends at your beach house.
There is one other thing but it’s kind of hard to arrange. If she has any friends or relatives that she envies or looks up to, and they get into real estate investing, that should do it. But be carefull.
At the peak of every boom there are hundreds of lemmings who go out and buy property at ridiculous prices because some friend or relative made a bundle in real estate or similar cocktail party chatter. These lemmings are the ones the smart investors are selling to at the peak of the boom, and after they buy there are no more customers to keep the boom going.
I’m afraid you may be right about the zebra. I would bet that those stripes might lighten up a bit though if a few thousand extra dollars rolled in a month.
I have thought of the venture idea, but choosing the right partner is the luck of the draw. I have been warned about bringing even family members into a business deal, so its even more of a gamble to go with someone I don’t know.
I used to work with a guy who is now interested in investing. My concern with a partnership is spreading of the responsibilities and rewards. I don’t want to end up doing all of the work and splitting the profits. Is an LLC the way to go if I decide to do this?
One son will be going to college in 3 years. Wife has less resistance to considering a property near son’s potential college. Son could live in property rent-free and collect rent from a few roommates. It’s a long-term plan, but if we purchased now we could start building some equity and could potentially realize a nice appreciation in 5-10 years. Maybe I’ll stick with this line of thinking. It’s a start.